Monday, January 19, 2009

Case study.How price controls in Medicine has worked out

Legislation was passed in 1991 and put into place in 1992 that effectively imposed on a major component of medical practice in the U.S. controls on physicians charges. Controls had already (1984) been placed on hospital charges for Medicare patients in the form of a Prospective Payment System. There were three major elements in the legislative action regarding Medicare fees for physicians.

1.The billing known as "CPR", or customary,prevailing and reasonable was replaced with a relative value formula for determining the maximal prices that could be charged for Medicare patients.

2.The billing practice known as balanced billing was abolished

3.To control growth in Medicare spending a system called Medicare Volume Performance standard was enacted which reduced reimbursement to physicians based on the degree to which total Medicare services increased. So if more surgery, x-rays and other procedures were done, the total amount spent on Medicare doctors fees was reduced to try and keep the global budget from growing.

The predictable effects of these price controls have been seen. Demand for services has increased, quality has decreased.We have seen gaming of the system and politicalization of health care. The type of medical practice that has come to be known as primary care has particularly felt the impact. FP and IM physicians have found it increasingly difficult to deal with the reduced fees . Primary care docs-whose fees were smaller to begin with-have tended to attempt to increase their output by seeing more patients to try and compensate for the decreased compensation per patient encounter by either spending less time per patient encounter and/or employing mid-level health care workers to see patients.The now only recently talked about role of the RUC played a key role in shaping the payment system controls so that primary care docs were the major losers and the procedure heavy specialist did relatively better.

What other profession has its charges limited by federal government enforced price controls? Of course, not all of medical fees are controlled. Private insurers ,however, tend to follow the fee setting of Medicare. While cosmetic plastic surgeons and cosmetic dermatologists and concierge docs can operate outside of this system and pediatricians may play in different ballpark, the effect of the price controls is determinative of much of what is wrong and worsening in American medicine.

The "Medical Home" suggested by the American College of Physicians will be operating in the same environment of price controls and is either naive or is a "wink-wink--nudge-nudge" suggestion that even they do not believe. P4P will only make things worse.

I wonder how many college students would seriously consider medicine as a career if they knew government price controls had been in place since 1992 and there was little if any hope of the situation changing.

Although price controls can be blamed for much of the perfect storm that is causing havoc in American medicine, at least two other factors are at work: 1)the phenomenon of spending other people money 2)the mind boggling developments in technology and therapeutics of the last several decades. Both of these have amplified the increased demand for medical services and it is not surprising that the "other people" ( government and other third party payers) have moved to enact measures to control costs which most notably are managed care and now P4P. The "measurement and forced compliance" managerial paradigm has been transplanted into medical care as the corporate and government players move to control medical costs in part by controlling medical practice in accordance with the current management fad of the day.

So, how have price controls in medicine worked out over the last 15 years? Exactly like you would expect : increased demand, shortages in primary care physicians and more recently general surgeons and decreased quality and ever increasing dissatisfaction among physicians and many patients.